The war in Ukraine has created a significant incentive for Europe to wean itself off Russian gas and oil. According to data from the European Union’s statistics office Eurostat, Russia accounted for 41.1% of the bloc’s natural gas imports in 2019 and a little over a quarter of its oil.

There have already been signs of Europe’s determination to turn away from Russia for its energy needs as the German government halted the Nord Stream 2 pipeline which links the two countries.

A potential alternative source could be to ramp up liquefied natural gas, or LNG, imports from the US. It has been a net exporter of gas since the discovery of substantial shale gas deposits earlier this century.

LNG is gas chilled to a liquid, reducing it to fraction of its volume and making it viable to transport over long distances.

In 2016 Cheniere Energy became the first US company to export LNG and it retains a central place in the country’s LNG infrastructure.

It operates two facilities on the US Gulf Coast, Sabine Pass in Louisiana and Corpus Christi in Texas. The former has capacity
of 30 million tonnes per year, while that latter has capacity of 15 million tonnes per year.

Cheniere purchases gas in the North American market, where prices are significantly lower than Europe, and transports it to two hubs. From here the gas is processed into LNG and then either loaded onto customers’ vessels or shipped to regasification facilities across the globe.

The company has plenty of demand for its products and services. The world remains reliant on gas and the energy source is seen as a bridge between more polluting fossil fuels like oil and coal to renewables where there are currently technology and capacity limitations when it comes to fulfilling the world’s energy needs.

Cheniere is investing to increase the capacity of its LNG terminals and around 90% of its production is secured to long-term supply contracts. However, the remaining output not already contracted out can benefit from strength in the market and Cheniere recently lifted its 2022 earnings forecast by 20% to $7.5 billion.

After a strong run in the past 12 months the US-listed shares aren’t cheap at 13.6 times forward earnings, and the yield is only a little over 1%. However, we think this valuation is more than justified by Cheniere’s leading position in a market with increasing growth drivers.

There is a real chance that energy prices could keep going up and Cheniere is exactly the stock you should own in this situation.

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